Before : MR JUSTICE MORGAN Between : BRITISH AIRWAYS PLC. - and - AIRWAYS PENSION SCHEME TRUSTEE LIMITED

Transcription

1 Neutral Citation Number: [2017] EWHC 1191 (Ch) IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Case No: HC Rolls Building, Royal Courts of Justice Fetter Lane, London, EC4A 1NL Date: 19/05/2017 Before : MR JUSTICE MORGAN Between : BRITISH AIRWAYS PLC - and - AIRWAYS PENSION SCHEME TRUSTEE LIMITED Claimant Defendant Michael Tennet QC, Sebastian Allen and Michael Ashdown (instructed by Linklaters LLP) for the Claimant Keith Rowley QC, Jonathan Hilliard QC and Henry Day (instructed by Eversheds LLP) for the Defendant Hearing dates: and 31 October, 1-4, 7-11, 14-18, 21-25, November, and 5-9 December 2016 and written submissions thereafter I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic....

2 MR JUSTICE MORGAN MR JUSTICE MORGAN: Heading Paragraph number The case in outline 1 The origin of the APS 15 The original 1948 trust deed and rules 24 The consolidated trust deed and rules 35 The litigation in Stevens v Bell 51 The management and administration of the APS 54 The APS trustees 64 The NAPS 68 The funding of the APS 75 The funding position of the APS and the NAPS 90 The 2010 funding agreements 91 The 2013 funding agreements 95 RPI and CPI 98 The operation of rule 15, before amendment 105

3 The challenged decisions 110 BA s pleaded case 122 BA s application for permission to amend 128 The issues 136 The evidence as to fact 137 From June 2010 to March From March 2011 to July From July 2012 to February From February 2013 to November The trustees meeting on 19 November The basic legal principles and terminology 349 The scope of the power to amend: introduction 353 The scope of the power to amend: submissions for BA at the trial 358 The scope of the power to amend: submissions for the trustees at the trial 384 The authorities relied upon by the trustees 392 The scope of the power to amend: further material and submissions 402

4 The scope of the power to amend: discussion and conclusions 407 The purpose of the power to amend 431 The alleged pre determination in relation to the exercise of the power to amend 433 Conclusion as to the amendment to rule The decision of 28 February The decision of 26 June The decision of 19 November The scope of the discretionary increase power 472 The purpose of the discretionary increase power 480 The decision making in relation to the discretionary increase power: the law 482 BA s challenges to the decision of 19 November The alleged pre determination up to November Mr Douglas 499 Mr Mallett 512 Captain Pocock 521 Mr Tomlin 536

5 Mrs Sellers 549 Mr Mitchell 563 General remarks 574 Relevant and irrelevant considerations 579 The first challenge 580 The second challenge 583 The third challenge 587 The fourth challenge 595 The fifth challenge 600 The sixth challenge 606 The seventh challenge 616 The eighth challenge 618 The ninth challenge 622 Perversity 630 Concluding remarks 631 A summary of my conclusions 635

6 The case in outline 1. The Airways Pension Scheme ( the APS ) is a balance of cost, final salary, defined benefit, occupational pension scheme. It was originally established in 1948 and it was closed to new members from 31 March The APS is a mature scheme. As at 31 March 2012, it had 29,766 members, of whom 3% were active members, 7% deferred members and 90% pensioners. As at 31 March 2015, it had 27,268 members, of whom 2% were active members, 5% deferred members and 92% pensioners (the figures have been rounded off). 2. In general terms, the APS is a generous scheme. Rule 15 provided that the annual rate of pensions under the scheme would be adjusted upwards in accordance with annual Pension Increase Review Orders ( PIROs ) made by the Treasury. For many years prior to 2010, PIROs had provided for an increase equivalent to the uplift in the Retail Price Index ( RPI ). The rules of the Scheme did not provide for any cap on the amount of the uplift in pensions which was therefore the full amount of the uplift provided by a PIRO. The absence of a cap was a particular advantage to the members of the scheme. Accordingly, the pensions payable under the APS had been described as index-linked or inflation-proofed. 3. The reason that the APS provided for up-rating in accordance with PIROs was that the scheme originally related to employment in the public sector. By 1987, the sole sponsoring employer under the APS was British Airways plc ( BA ) and it was privatised in However, rule 15 was not changed at that time so that it continued to provide for uprating pensions in accordance with PIROs. 4. On 22 June 2010, the Chancellor of the Exchequer announced that, in the future, public sector pensions would be uprated by reference to the Consumer Price Index ( CPI ) rather than RPI. On 8 July 2010, the Department for Work and Penions announced that it would in future use CPI rather than RPI for Revaluation Orders under the Pension Schemes Act 1993 and indexation under the Pensions Act 1995, in relation to private sector schemes. The first PIRO after the Chancellor s announcement, taking effect from 11 April 2011, used CPI accordingly. Because rule 15 provided for uprating by reference to PIROs, these announcements affected the APS, even though it was at that time a scheme relating to employment in the private sector. 5. In and since 2010, the general expectation has been that the rate of increase in accordance with CPI will be lower than the rate of increase in accordance with RPI. 6. Many members and pensioners of the APS were concerned at the move from RPI to CPI. The trustees of the scheme considered what, if anything, they should do in response to this change. Some of the trustees wished to amend rule 15 so that it would provide for uprating in accordance with RPI. This was called hardwiring RPI into the rules. 7. On 3 February 2011, the trustees voted unanimously to amend rule 15 to introduce a discretionary power which would allow the trustees from time to time to uprate pensions by an amount in addition to the uprating directed by the PIRO.

7 8. On 25 March 2011, the trustees executed a supplemental deed which formally amended rule 15 to introduce the discretionary power referred to above. On the same date, the trustees voted on whether to exercise that power for the year from April 2011 but there was not a sufficient number of votes in favour of an exercise of the power. 9. BA initially appeared to accept that the amendment of rule 15 was valid but in August 2013 they contended that the decision taken by the trustees on 3 February 2011 and the supplemental deed of 25 March 2011 were of no effect. That issue now needs to be decided in these proceedings. 10. On 29 February 2012, the trustees again voted on whether to exercise the discretionary power, purportedly conferred by the amended rule 15, for the year from April On this occasion also, there were not sufficient votes in favour of the exercise of the power. 11. On 28 February 2013, the trustees unanimously agreed to grant a discretionary increase of 50% of the gap between RPI and CPI for 2013, namely an increase of 0.2%, but they also agreed that this decision remained open to later review. 12. On 26 June 2013, the trustees confirmed the decision taken on 28 February 2013 to grant a discretionary increase of 0.2%. There is an issue as to whether the trustees made an effective decision that such increase would take effect from 1 September On 19 November 2013, the trustees by a majority voted to grant a discretionary increase of 0.2% with effect from 1 December In these proceedings, issued on 6 December 2013, BA contends that (even if rule 15 had been validly amended in 2011) the decisions taken by the trustees on 28 February 2013, 26 June 2013 and 19 November 2013 were of no effect so that the uprating of pensions pursuant to rule 15, as amended, has been in accordance with the relevant PIRO and does not include a 0.2% discretionary increase above the rate fixed by the PIRO for Conversely, the trustees contend that they have made an effective decision to grant a discretionary increase of 0.2% above the rate directed by the PIRO for 2013, with effect from 1 September 2013, alternatively from 1 December The origin of the APS 15. The British Overseas Airways Corporation was established by the British Overseas Airways Act The British European Airways Corporation and the British South American Airways Corporation were established by the Civil Aviation Act In the 1946 Act, these three corporations were referred to as the three corporations. The three corporations were in public ownership and the 1946 Act conferred on the Minister of Civil Aviation a wide range of powers in relation to them. 16. Section 19 of the 1946 Act was headed Terms and conditions of employment of staff, etc and made some general provisions as to consultation in relation to machinery for the determination of terms and conditions of employment of persons by the three corporations.

8 17. Section 20 of the 1946 Act required the Minister by regulations to provide for the establishment or maintenance of one or more pension schemes for the purpose of providing pensions and other similar benefits in respect of the service of specified classes of employees of the three corporations and, in particular, to provide for securing benefits in the case of injury or death. 18. On 8 October 1948, the three corporations, described as the Corporations, a number of named persons described as the Management Trustees and the Airways Corporations Joint Pension Fund Trustees Ltd described as the Custodian Trustees executed a trust deed setting out the trusts and rules which were to govern the pension scheme for the three corporations, subject to confirmation by Regulations to be made by the Minister under section 20 of the 1946 Act. 19. On 25 October 1948, the Minister made the Airways Corporations (General Staff Pensions) Regulations 1948 which confirmed the establishment and maintenance of a pension scheme in accordance with the trust deed, which was set out in a Schedule to the Regulations. Reg. 7 of the 1948 Regulations provided that no amendment of, or addition to, the trust deed should have effect unless confirmed by Regulations made under section 20 of the 1946 Act. 20. Over the years, there were changes in relation to the constitution of the original three corporations and there were a number of statutory provisions relating thereto, to which it is not necessary to refer. 21. The 1948 trust deed was amended on various occasions between 1948 and The 1948 Regulations were amended on a large number of occasions. By 1971, the reference in reg. 7 of the 1948 Regulations to section 20 of the 1946 Act had become a reference to section 24 of the Air Corporations Act In 1971, the Secretary of State in exercise of his powers under section 24 of the Air Corporations Act 1967 made the Air Corporations (General Staff, Pilots and Officers Pensions) (Amendment) (No 2) Regulations Reg. 3(1) of the 1971 Regulations provided that reg. 7 of the 1948 Regulations (which required any amendment of, or addition to, the trust deed to be confirmed by regulations made under section 24 of the 1967 Act) should cease to have effect. Accordingly, but subject to the provisions of reg. 3(2), the trust deed as amended could be further amended or added to without such amendment or addition being confirmed by regulations made under the said section 24. Reg. 3(2) of the 1971 Regulations provided for a minor qualification on the operation of reg. 3(1), to which it is unnecessary to refer. 23. The trust deed was further amended between 1971 and On 16 July 1973, the scheme which was by then known as the Airways Pension Scheme was further amended, in particular, by the introduction of Part VI of the rules of the scheme. The Part VI rules are of particular relevance in the present case. The trust deed was further amended between 1973 and 1 April 2008, at which point there was prepared a consolidated trust deed which contained the provisions of the original trust deed as amended up to that date and a document which recorded the rules relating to Part VI, also as amended up to that date. The parties submissions proceeded on the basis that there were no changes to the consolidated trust deed and rules between 1 April 2008 and 25 March 2011 that were relevant to the issues in this case.

9 The original 1948 trust deed and rules 24. It is relevant to refer to some of the provisions of the original 1948 trust deed and rules. In particular, it is relevant to refer to clauses 2, 3, 4, 8, 11, 12, 13, 18, 19 and 21 of the 1948 trust deed. Clause 2 had the marginal note Main Object, but the marginal note was, pursuant to clause 20, for convenience of reference only. Clause 2 provided: THE main object of the Scheme is to provide pension benefits on retirement and a subsidiary object is to provide benefits in cases of injury or death for the staff of the Corporations in accordance with the Rules. The Scheme is not in any sense a benevolent scheme and no benevolent or compassionate payments can be made therefrom. 25. Clause 3 of the 1948 trust deed provided that the three corporations would pay to the Management Trustees the contributions due from the three corporations in accordance with the rules. Clause 4 provided that the Management Trustees should manage and administer the scheme. Clause 8 provided that the Management Trustees had power to appoint and to remove the scheme actuary. 26. Clause 11 of the 1948 trust deed provided: The duties of the Actuary shall be: (a) At or as soon as practicable after the date of the coming into force of the Scheme and thereafter at the end of such periods not exceeding five years as the Management Trustees shall from time to time determine the condition of the Fund shall be submitted to the Actuary who shall consider the same and shall make an actuarial valuation of the assets and liabilities of the Fund and shall report on the financial position thereof to the Management Trustees who shall forthwith transmit a copy thereof to each of the Corporations together with any recommendations they may wish to make in regard thereto (b) In conjunction with each valuation made in accordance with sub-clause (a) of this clause the Actuary shall make a separate actuarial valuation of the assets and liabilities of the Fund attributable to each of the Corporations and if the Actuary certifies that a deficiency or disposable surplus as the case may be is attributable to a Corporation he shall certify the amount thereof and the Management Trustees shall within three months after receiving such certificate make a scheme for making good the deficiency or as the case may require disposing of the disposable surplus Provided that any such scheme shall be subject to the agreement of the Corporation to which it applies or in default of such agreement shall be submitted to the Minister for approval and shall come into force subject to such amendments (if any) as the Minister may direct

10 (c) If the Actuary certifies that there is a deficiency attributable to a Corporation the scheme referred to in paragraph (b) above shall provide that that Corporation shall contribute to the Fund in addition to any existing deficiency contribution payable under this clause and to the contributions prescribed by the Rules an equal annual deficiency contribution calculated to make good the deficiency over a period not exceeding forty years from the date of the valuation Provided that a Corporation may at any time or times pay to the Fund such moneys as the Corporation shall think fit in or towards satisfaction of any deficiency contributions which it would otherwise have been liable to provide on any subsequent date or dates (d) If the Actuary certifies that there is a disposable surplus attributable to a Corporation the scheme referred to in paragraph (b) above shall provide that: (i) The amount or outstanding term of any existing annual deficiency contribution shall be reduced to such extent as the disposable surplus will permit (ii) If after having extinguished as aforesaid all outstanding annual deficiency contributions of a Corporation a balance of disposable surplus still remains the contributions of the Corporation shall be reduced to an extent required to dispose of such balance by annual amounts over such a period not exceeding Thirty years from the date of the valuation as the Actuary shall advise (e) Where on such valuation the Actuary certifies that in order to maintain an equality of value in relation to persons becoming members subsequent to three months from the date of the Report on the valuation between the amounts to be contributed by and in respect of such persons and the amounts of benefits to which such persons will become entitled it is expedient to increase or decrease contributions payable to the Fund provision may be made by the scheme referred to in paragraph (b) above for such increase or decrease as the case may require (f) The Actuaries shall also make and give such other reports and certificates and give such advice and information relating to the Fund as the Management Trustees or any of the Corporations may deem to be necessary or expedient. 27. Clause 12 of the 1948 trust deed provided for the appointment of the Management Trustees. There were to be 12 Management Trustees. Each of the three corporations was to appoint 2 trustees and the Members were to appoint 6 Management Trustees. By clause 13, the Management Trustees had power to determine whether or not a person was entitled to any pension benefit or allowance in accordance with the trust deed and rules.

11 28. Clause 18 of the 1948 trust deed provided for the possibility of amendment of, or addition to, the trust deed and rules and was in these terms: SUBJECT to the provisions of the Civil Aviation Act 1946 and Regulations made by the Minister under Section 20 thereof the provisions of the Trust Deed may be amended or added to in any way by means of a supplemental deed executed by such two Management Trustees as may be appointed by the Management Trustees to execute the same Furthermore subject to the said provisions of the Civil Aviation Act 1946 and any such Regulations the Rules may be amended or added to in any way and in particular by the addition of rules relating to specific occupational categories of staff No such amendment or addition to the provisions of the Trust Deed or to the Rules shall take effect unless the same has been approved by a resolution of the Management Trustees in favour of which at least two thirds of the Management Trustees for the time being shall have voted Provided that no amendment or addition shall be made which (i)would have the effect of changing the purposes of the Scheme or (ii) would result in the return to the Corporations of their contributions or any part thereof or (iii) would operate in any way to diminish or prejudicially affect the present or future rights of any then existing member or pensioner or (iv) would be contrary to the principle embodied in Clause 12 of these presents that the Management Trustees shall consist of an equal number of representatives of the employers and the members respectively. 29. Clause 19 of the 1948 trust deed was a reservation by the three corporations of the right, subject to the approval of the Minister, to give not less than 6 months notice to the Management Trustees to terminate their contributions to the scheme in whole or in part, whereupon there was to be due from the three corporations such outstanding sums as might be needed to restore the solvency of the scheme having regard to the rights accrued at the date of termination of contributions. 30. Clause 21 of the 1948 trust deed provided that nothing in the trust deed or rules should be construed as limiting the functions of the National Joint Council for Civil Air Transport in the negotiations of the wages and conditions of employment of persons employed by the Corporations. 31. Schedule 1 to the 1948 trust deed contained the rules of the scheme. It is relevant to refer to rules 9, 10, 11, 14 and 28. Rule 9 provided that members would become entitled to pension benefits in accordance with the First Table to the rules. The First Table provided for 45 separate categories by reference to the amount of the pay due to the employee. The First Table then identified the amount of the employee s contributions for each category

12 and the amount of the annual pension for each year of service in a relevant category. Taking category 45, the category with the highest rate of pay ( 5,000 and over per annum), as an example, the annual pension for each year in that category was Rule 10 of the 1948 rules provided for death benefits. Rule 11 of those rules provided for accident benefits. Rule 14 of those rules provided for ill-health pensions. Rule 28 of those rules provided that the rules might be amended or added to in accordance with the provisions of the 1948 trust deed. 33. As can be seen from these references to the trust deed and rules, the Minister played a role in the original version of the scheme. It was for the Minister to confirm by regulation any alterations made to the trust deed or rules pursuant to the amendment power contained in clause 18 of the trust deed, to adjudicate under clause 11 in relation to schemes for making good a deficiency or disposing of a surplus and to consent to any notice to wind up the scheme under clause The 1948 trust deed and rules made no provision for pension increases. I was told that during the period governed by the original trust deed and rules, pension increases were sometimes granted on an ex gratia basis although I was not told who precisely was involved in deciding those matters. The consolidated trust deed and rules 35. The consolidated trust deed and rules set out the relevant provisions as amended from time to time up to 1 April This version of the trust deed and rules remained current until the further amendment which was made on 25 March 2011, the validity of which is disputed in these proceedings. 36. The relevant provisions of the consolidated trust deed are clauses 2, 3, 4, 11, 12, 13, 18, 19, 21, 23 and 24. The original terms of the 1948 trust deed had been amended to reflect the fact that the original Corporations were replaced as the sponsoring employer by a single company, BA, referred to in the consolidated trust deed as the Employer. The various provisions of the 1948 trust deed were amended so as to refer to the Employer rather than the Corporations. References in the 1948 trust deed to the Minister were removed between 1984 and Apart from these changes and consequential amendments, there were no amendments of substance to clauses 2, 3, 4, 11, 13 and 21. Clause 12, dealing with the appointment of Management Trustees, referred to 6 trustees being appointed by the Employer and 6 trustees being appointed by the members and pensioners of the scheme. 37. Clause 18 in the 1948 trust deed was amended only so as to reflect the change from the reference to the Corporations to a reference to the Employer, and to remove the reference to the Minister, but in view of the importance of clause 18 in this case, I will set it out as it appears in the consolidated trust deed, as follows: The provisions of the Trust Deed may be amended or added to in any way by means of a supplemental deed executed by such two Management Trustees as may be appointed by the Management Trustees to execute the same. Furthermore the Rules may be amended or added to in any way and in particular by the addition of rules relating to specific occupational categories of staff. No such amendment or addition to the

13 provisions of the Trust Deed or to the Rules shall take effect unless the same has been approved by a resolution of the Management Trustees in favour of which at least two thirds of the Management Trustees for the time being shall have voted PROVIDED THAT no amendment or addition shall be made which - (i)would have the effect of changing the purposes of the Scheme or (ii) would result in the return to an Employer of their contributions or any part thereof or (iii) would operate in any way to diminish or prejudicially affect the present or future rights of any then existing member or pensioner or (iv) would be contrary to the principle embodied in Clause 12 of these presents that the Management Trustees shall consist of an equal number of representatives of the employers and the members respectively. 38. The scheme had been closed to new members with effect from 31 March 1984 and that was stated in clause 23 of the consolidated trust deed. 39. Clause 24 of the consolidated trust deed had been introduced in 1990 as an amendment to the 1948 trust deed and provided: Discretionary benefits (a) Subject to the payment to the Fund by the Employer of such sum or sums, if any, as may be advised by the Actuary to be necessary, the Employer may by notice in writing to the Management Trustees specify that there shall be provided under the Scheme: (i) increased or additional benefits to or in respect of any Member, Pensioner or category of Member or Pensioner; and (ii) benefits on different terms and conditions from usual for or in respect of any Member, Pensioner or category of Member or Pensioner and the Management Trustees shall thereupon provide the same accordingly. (b) Subject to the payment to the Fund by the Employer of such sum or sums, as may be advised by the Actuary as the costs of the benefits, the Employer may, with the consent of the Management Trustees, specify that there shall be provided under the Scheme benefits in respect of any employee, or former employee, of the Employer, or category thereof (other

14 than Members or Pensioners), and the Management Trustees shall thereupon provide the same accordingly. The Employer shall make the payment to the Fund, as set out above, within four weeks of the commencement of the payment of benefits. 40. The rules of the scheme which are relevant for the purposes of this dispute are those contained in Part VI of the rules, as amended prior to 1 April Those rules were not changed prior to 25 March 2011, the date of the purported amendment to the rules which is in dispute in this case. 41. The relevant rules in Part VI of the rules are rules 8, 9, 10, 11, 12, 13A, 15, 19, 30 and Rule 8 provided for the payment of what was described as a Normal pension and specified the rate of accrual adopted for the calculation of such pension. Rule 9 provided for a Dependant s pension. Rule 10 provided for an Adult survivor s pension. Rule 11 provided for a Dependent Child s allowance. Rule 12 provided for an Ill-health pension. Rule 13 provided for a Deferred pension. 43. Rule 13A applied in certain specified circumstances. In those circumstances, rule 13A permitted the Employer, in its absolute discretion, to give notice in writing to the secretary to the scheme (before 26 March 1986) to request the Management Trustees to pay a specified augmentation element to certain pensioners. Under Rule 13A(d), in such a case the Employer was obliged to pay to the Management Trustees by way of a contribution to the scheme a sum which was the actuarial equivalent of the augmentation element of such a pension. The way in which rule 13A fitted in with rule 34 and clause 24 of the Trust Deed is referred to below. 44. Rule 15 is at the centre of the dispute in this case and it provided: The annual rate of all pensions and allowances payable or prospectively payable under Rules 8, 9, 10, 11, 12, 13 and 34 hereof shall be adjusted as if the rates of increase as specified in the Annual Review Orders issued in accordance with section 59 of the Social Security Pensions Act 1975 were applicable thereto PROVIDED ALWAYS that if the said Act is repealed and not replaced or should it become necessary to review the basis of such annual adjustments steps shall be taken to ensure that the annual adjustments of pensions and allowances continue to be made based upon an appropriate national index or indices reflecting fluctuations in the cost of living PROVIDED FURTHER that without prejudice to compliance with the requirements of section 51 of the Pension Act 1995, any adjustment under the provisions of this Rule shall not apply (A) during the period of postponement, to pensions postponed under the provisions of Rules 8(a) or 13(c); (B) in respect of the period from the date of cessation of contributions until the date of commencement of payment, to pensions deferred under the provisions of Rules 5(e), 20(e) or (subject to Rule 34(d)) 20(l);

15 (C) when the relevant pension or allowance is in payment, to any actuarial increase under Rule 5(e)(iii); nor shall such adjustment apply (subject to section 51 aforesaid) to any crystallisation uplift as described in Rule 5(e)(iv) (or to any part of a pension or allowance attributable to any such actuarial increase or crystallisation uplift), where in any such case an election to this effect has been duly made in accordance with the provisions of paragraph (iv) or (v) of Rule 5(e) as applicable. 45. Rule 19 provided for payment of a Death Benefit. 46. Rule 30 provided that the rules might be amended or added to in accordance with the provisions of the trust deed. 47. Rule 34 permitted the Employer by notice in writing to the Management Trustees (before 15 November 1989) to specify that a member or pensioner, or category of member or pensioner, should be provided with increased or additional benefits, or benefits on different terms and the Management Trustees were required to provide the same accordingly but subject to the payment to the scheme by the Employer of such sums or sums if any as might be advised by the Actuary to be necessary. 48. It can be seen that at various times, rules 13A and 34 and clause 24 of the trust deed provided for the augmentation of benefits under the scheme. These provisions applied at different times. Rule 13A was introduced in In 1986, it was replaced by rule 34. Rule 34 required a notice to be served by the Employer prior to 15 November Clause 24 was introduced into the trust deed by an amendment made in It was agreed that the way in which the various provisions of the scheme work in practice is as follows: (1) the Normal Retirement Age ( NRA ) is 55 for pilots and cabin crew and 60 for general staff; (2) the accrual rate is 1/52 nd for pilots and cabin crew and 1/56 th for general staff; (3) final salary is calculated as the average of the best two years of pensionable pay in the last five years before retirement; (4) pension increases in payment in excess of any guaranteed minimum payment are in accordance with the Government s Pensions Increase (Review) Orders, with no cap; (5) Members contributions are currently 8.5% of pay for pilots and cabin crew, and 7.25% of pay for general staff; (6) BA s contributions in respect of future accrual since 1 July 2013 are 34.7% of pay for all categories of staff; (7) pensionable pay was frozen from 2010 to 2014; since 2014, Members wishing to unfreeze their pensionable pay have been required to accept a salary reduction of 4.5%.

16 50. It can be seen that the benefits structure under the original 1948 trust deed and rules has been significantly altered over time. In 1948, the scheme was what was described as a building blocks scheme whereas at present it is essentially a final salary defined benefits scheme. I was told that since 1990, BA has made various improvements to members benefits under Clause 24, which have been funded either out of surplus, or by specific additional contributions made by BA to fund the cost of those improvements, as calculated by the Scheme Actuary. The last such improvement to members benefits was made for the period 1 April 2009 to 30 June It appeared to be agreed by the parties at the trial that the other changes which have been effected to the benefits structure have been brought about by amendments made pursuant to the power to amend in clause 18 of the trust deed. The litigation in Stevens v Bell 51. This scheme has been the subject of an earlier dispute which was considered first by Lloyd J and then by the Court of Appeal. Their judgments are reported as Stevens v Bell at [2001] PLR 99 and [2002] PLR 247 respectively. Those judgments were primarily concerned with the operation of clause 11 of the trust deed at a time when the scheme was in surplus. In 2000, the scheme had a surplus of 820 million, out of assets with a market value of 6.7 billion. 52. In his judgment, Lloyd J commented on the reference to Main Object in clause 2 of the trust deed ([11], [45] and [52] of his judgment) and considered the power to amend conferred by clause 18 of the trust deed ([15], [20], [43], [44], [45], [53] and [69] of his judgment). Lloyd J held, in his answer to the sixth question which he was asked to consider, that the power conferred by clause 11(b) of the trust deed was restricted by the Main Object provision in clause 2. He noted that the power conferred by clause 18 of the trust deed to amend the trust deed and rules did not require the consent of the employer but that the four provisos to clause 18 and the requirement of a super majority represented a different kind of balance from a requirement for the employer s consent: see [45] of his judgment. The judge considered in detail the relationship between clauses 11 and 18 but not all of his reasoning was approved by the Court of Appeal. The judge also drew attention to various respects in which the scheme was very favourable to members and pensioners and he commented that, under the original version of the trust deed, the Minister of Civil Aviation represented the Government which was, in effect, the paymaster of the industry: see [22] of his judgment. 53. In Stevens v Bell, the Court of Appeal (Auld, Waller and Arden LJJ) disagreed with some of the conclusions of Lloyd J and agreed with others. For present purposes, it is not necessary to describe the detail of all of the conclusions reached by the Court of Appeal. The leading judgment in the Court of Appeal was given by Arden LJ, with whom the other members of the court agreed. At [8] of her judgment, she commented that the scheme was closed to new members in 1984 because the terms of the scheme were considered to be unsuitable at the time of the privatisation of BA, which took place in 1987, and that the potential liabilities of the employer under the scheme were considered to be too great for private investors. At [26] to [32] of her judgment, she identified six considerations which are to be taken into account by a court asked to interpret the provisions of a pension scheme. Those paragraphs have subsequently been frequently cited and are now well known; I will refer to them again later in this judgment. At [140], Arden LJ commented on the nature of an actuarial surplus

17 describing the position in that respect as changeable. Arden LJ considered in detail the relationship between clauses 11 and 18. She held that clause 11(b) created a power to make a scheme so that it was not necessary to look elsewhere in the trust deed for a provision conferring a power to make a scheme. If, however, the particular scheme involved an amendment to the trust deed or rules, then the trustees had to use clause 18 for that purpose. Arden LJ agreed with Lloyd J that a scheme under clause 11(b) could provide for an increase in pension benefits and the provision of new benefits: see the answers to questions 8(1)(b) and (c) in that case. A scheme could not provide for the making of a payment to the employer because that would involve an amendment to the scheme and such an amendment was precluded by proviso (ii) to clause 18. The management and administration of the APS 54. I will now describe the administrative arrangements in relation to the APS at the time of the various decisions which are in issue in this case. It will also be relevant in this section of the judgment to refer to the existence of a further pension scheme called the New Airways Pension Scheme ( NAPS ). I will describe the position in relation to the NAPS in greater detail later in this judgment. 55. Twelve Management Trustees (referred to simply as the Trustees ) were appointed to manage and administer the APS. Six of the Trustees were appointed by BA and were referred to in the APS trust deed as Employers Representatives, and six were elected by APS members and were referred to as Members Representatives. The equal weighting between the two groups of trustees was entrenched by the proviso in clause 18(iv) of the APS trust deed stating that this requirement for equal weighting could not be amended pursuant to the general power to amend the trust deed. 56. The Members Representatives were elected by two separate constituencies of active and pensioner members. Ordinarily, five Trustees were elected by pensioners and must themselves be pensioners, and one was elected by active members and must be an active member. Where no nominations were received for an active member vacancy the vacancy was opened to pensioner members. Deferred members were not entitled to vote. 57. In these proceedings, the two types of trustee have been referred to as ENTs (Employer Nominated Trustees) and MNTs (Member Nominated Trustees) respectively. The Chair of the trustees was appointed by BA, and at all relevant times was Mr Paul Spencer. 58. When these proceedings were issued on 6 December 2013, BA named as Defendants the 12 trustees who were the then current trustees. In July 2016, Airways Pension Scheme Trustee Ltd was incorporated and this corporate trustee has now replaced the 12 individual trustees and has been substituted as the Defendant in these proceedings. 59. The administration of the APS, subject to the direction of the trustees, was in the charge of the Scheme Secretary and her staff. The Scheme Secretary and other staff were appointed by the trustees. At all relevant times the Scheme Secretary was Ms Teresa Suriyae.

18 60. The assets of the APS were vested in a Custodian Trustee which acted in accordance with the decisions and directions of the trustees. The Custodian Trustee was British Airways Pension Trustees Ltd ( BAPTL ), formerly known as Airways Corporations Joint Pension Fund Trustees Ltd. The directors of BAPTL were the trustees of the APS and the NAPS, and the Scheme Secretary was the Company Secretary. 61. BAPTL had two wholly owned subsidiaries, British Airways Pension Services Ltd ( BAPSL ) and British Airways Pension Investment Management Ltd ( BAPIML ). (1) BAPSL carried out the administration of the APS. Some of the trustees were directors of BAPSL. (2) BAPIML carried out day-to-day investment management within the parameters established by the trustees, and under the direction of its chief executive. 62. The trustees typically met quarterly as the Main Board, although in the period which is relevant for the present proceedings, they met more frequently. These meetings were generally attended by all trustees, the Scheme Secretary and members of her staff, the Scheme Actuary and the trustees other professional advisers as required, and the Trustees of the NAPS. 63. The trustees had established three standing committees to give detailed consideration to particular matters before the Main Board took a final decision. These were: (1) Operations Committee: responsible for payments of scheme benefits, considering legislative and benefits changes to the scheme, overseeing the implementation of the communication programme and monitoring management and controls; (2) Governance & Audit Committee: responsible for reviewing the performance of the scheme's advisors, ensuring compliance with regulatory requirements, risk management and audit; (3) Investment Committee: responsible for investment matters, including investment initiatives, strategic asset allocation decisions, reviewing the performance benchmarks, and monitoring of the Statement of Investment Principles. The APS trustees 64. In this case, it will be necessary to examine the decisions made by the APS trustees on various occasions. The dates of the most relevant decisions are: (1) 3 February 2011; (2) 25 March 2011; (3) 28 February 2013; (4) 26 June 2013; and

19 (5) 19 November As at 3 February and 25 March 2011, the Trustees were: (1) Mr Paul Spencer (ENT) (Chair) (2) Ms Joanna Boswell (ENT) (3) Mr Alan Buchanan (ENT) (4) Mr Charlie Maunder (ENT) (5) Mr Steve Gunning (ENT) (6) Mr Kieran Graham (ENT) (7) Capt Clifford Pocock (MNT) (8) Capt Mike Post (MNT) (9) Mr Thomas Mitchell (MNT) (10) Mrs Sandra Sellers (MNT) (11) Mr Graham Tomlin (MNT) (12) Mr Stuart Scott (MNT) 66. As at 28 February and 26 June 2013, the Trustees were: (1) Mr Paul Spencer (ENT) (Chair) (2) Ms Joanna Boswell (ENT) (3) Mr Alan Buchanan (ENT) (4) Mr Charlie Maunder (ENT) (5) Mr Philip Osmond (ENT) (6) Mr Peter Simpson (ENT) (Mr Osmond and Mr Simpson had replaced Mr Gunning and Mr Graham in the period since 25 March 2011) (7) Capt Clifford Pocock (MNT) (8) Mr Thomas Mitchell (MNT) (9) Mrs Sandra Sellers (MNT) (10) Mr Graham Tomlin (MNT) (11) Mr Stuart Scott (MNT)

20 (12) Mr Paul Douglas (MNT) (Mr Douglas had replaced Capt Post) 67. As at 19 November 2013, the Trustees were: The NAPS (1) Mr Paul Spencer (ENT) (Chair) (2) Ms Joanna Boswell (ENT) (3) Mr Alan Buchanan (ENT) (4) Mr Charlie Maunder (ENT) (5) Mr Philip Osmond (ENT) (6) Mr Peter Simpson (ENT) (7) Capt Clifford Pocock (MNT) (8) Mr Thomas Mitchell (MNT) (9) Mrs Sandra Sellers (MNT) (10) Mr Graham Tomlin (MNT) (11) Mr Paul Douglas (MNT) (12) Mr Stephen Mallett (MNT) (Mr Mallett was elected in place of Mr Scott with effect from 1 October 2013) 68. The NAPS was created by a trust deed dated 16 March 1984 and came into operation on 1 April From that date, new employees of BA joined the NAPS rather than the APS. In addition, 17,007 members of the APS transferred from the APS to the NAPS. The NAPS provided lower benefits at a lower member contribution rate. 69. In March 2003, the NAPS was closed to new members and, since then, new BA employees have not had the option of joining a final salary scheme, but have instead been entitled to join a defined contribution occupational pension scheme, the BA Retirement Plan ( BARP ). 70. The NAPS was structured in the same way as the APS, with six ENTs and six MNTs. The supporting structure of the NAPS was essentially the same as the structure of the APS. The Scheme Secretary and her staff, and BAPTL, BAPSL and BAPIML, all work for the NAPS as well as for the APS. Unlike in the APS, the NAPS MNTs were further divided into occupational constituencies. Five NAPS MNTs were elected by active members, with one each from: (i) pilots; (ii) cabin crew; (iii) ground services; (iv) engineering and other groups; and (v) administration and management. The remaining NAPS MNT was elected by pensioners and must be a pensioner member. The NAPS had also established the same standing committees as APS.

21 71. Although not obliged to do so, it had been the practice of BA to appoint the same individuals as ENTs for both the APS and the NAPS. At the times of the decisions in issue in this case, the APS and the NAPS have consequently had the same six ENTS, including the Chair, but each scheme had six MNTs unique to that scheme. 72. As at 31 March 2012, the NAPS had 67,599 members, of whom 34% were active members, 33% deferred members and 33% pensioners. 73. As at 31 March 2015, the NAPS had 67,040 members, of whom 31% were active members, 33% deferred members and 36% pensioners. 74. In relation to the NAPS: (1) Substantial benefit reductions were effected in 2007 and again in (2) Before 1 April 2007, the NRA was 55 for pilots and cabin crew and 60 for general staff. Since 1 April 2007, the NRA has been 65, 60 or 55 depending on the contribution rate members choose to pay for all staff. (3) The accrual rate: (1) Before 1 April 2007 was 1/52 nd for pilots and cabin crew and 1/56 th for general staff, with member contributions of 5.25% (for general staff) and 6.5% (for pilots and cabin crew); (2) Between 1 April 2007 and 30 September 2010 was 1/60 th, 1/56 th or 1/52 nd depending on member contributions; (3) From 1 October 2010 to 30 September 2011 was 1/75 th, with a member contribution rate of between 3.75% and 16%, 1/67 th if members paid contributions of %, or 1/60 th if members chose to pay a higher level of contributions between 8.25% and 20%; (4) Since 1 October 2011 has been 1/60 th (with member contributions between 9.75% and 22%), 1/67 th (with member contributions between 7.5% and 19.75%) or 1/75 th (with member contributions between 5.25% and 17.5%) for all staff. (4) Final salary is calculated as the average of the best two years of pensionable pay in the last five years before retirement, and a deduction is made of 1.5 times the Lower Earnings Limit i.e. 8,736 in 2016/17 (subject to a cap for certain members) to pensionable pay. (5) Pension increases in payment are in accordance with the Government s Pensions Increase (Review) Orders, but capped at 5% each year. (6) BA s contributions in respect of future accrual are between 13.2% and 18.2% of pay depending on occupational category and member s choice of benefit structure plus fixed lump sum contributions in respect of future accrual. The cost of accrual at the 2012 valuation was %. The funding of the APS

22 75. Both the APS and the NAPS are balance of cost defined benefit schemes under which employees make specified contributions, entitling them to pension and other benefits at given rates, and BA as sponsoring employer is obliged to make the contributions which are necessary to make up the difference in the cost of providing these benefits over and above the employees' contributions. 76. Clause 11 of the trust deed for the APS provided for the scheme actuary to carry out periodic valuations of the assets and liabilities of the scheme. As at the 1989 valuation pursuant to clause 11, the APS had a very substantial surplus. This was applied by the trustees in granting BA a contribution holiday which lasted until 2003, when BA resumed making contributions for future accrual. There was also a valuation for Part 3 of the Pensions Act 2004 (sections 221 to 233) has the heading Scheme Funding. These provisions apply to the APS by reason of section 221. Section 222 defines the statutory funding objective as a requirement that a scheme must have sufficient and appropriate assets to cover its technical provisions. A scheme s technical provisions means the amount required, on an actuarial calculation, to make provision for the scheme s liabilities: section 222(2). By section 222(3), assets and liabilities are to be considered in accordance with prescribed methods and assumptions. The Occupational Pension Schemes (Scheme Funding) Regulations 2005 supplement section 222 and other provisions in Part 3 of the Pensions Act Under section 223, the trustees of the APS must prepare and keep under review a written statement of funding principles in accordance with the detailed provisions of that section. Under section 224, the trustees of the APS must obtain certain actuarial valuations which value the scheme s assets and calculate its technical provisions. 79. Under section 226, if (following an actuarial valuation) it appears to the trustees that the statutory funding objective is not met on the effective date of the valuation, the trustees must prepare a recovery plan or review a pre-existing recovery plan. A recovery plan must set out the steps to be taken to meet the statutory funding objective. 80. Under section 227, the trustees must prepare and keep under review a schedule of contributions payable on behalf of the employer and the active members of the scheme. The schedule of contributions must be certified by the scheme actuary. 81. Under section 229, the trustees must obtain the agreement of the employer as to: (i) the methods and assumptions used in calculating the technical provisions of the scheme; (ii) any matter to be included in the statement of funding principles; (iii) the provisions of a recovery plan; and (iv) any matter to be included in the schedule of contributions. Under section 230, the trustees must generally obtain the advice of the scheme actuary as to these matters. 82. By section 231, the Pensions Regulator ( tpr ) has various powers to act where the trustees have failed to comply with their various obligations under Part 3 of the Pensions Act In such circumstances, the powers of tpr include a power to give directions as to the manner in which the scheme s technical provisions are to be calculated and as to the period within which, and the manner in which, any failure to meet the statutory funding objective is to be remedied. Further, tpr may impose a schedule of contributions.

23 83. The provisions of Part 3 of the Pensions Act 2004 are supplemented by the Occupational Pension Schemes (Scheme Funding) Regulations Reg. 5 deals with the calculation of a scheme s technical provisions. Reg. 5(4) requires the assumptions used in the technical provisions to be prudent in various respects. Reg. 6 deals with the statement of funding principles. Reg. 6(1)(d) provides that such a statement must include a statement as to: whether there are discretionary powers to provide or increase benefits for, or in respect of, all or any of the members and, if there are such powers, the extent to which they are taken into account in the funding of the scheme; 84. The provisions of Part 3 of the Pensions Act 2004 and the 2005 Regulations are the subject of a detailed Code of Practice, Funding Defined Benefits, issued by tpr. I was shown the version of the Code dated July Paragraph 136 of the Code included the following statement: The trustees should apply the following principles when preparing or revising the schedule of contributions: It should not refer to the contributions covering individual augmentations or general benefit improvements, unless these were planned and due to be paid when the schedule of contributions was certified. 85. Any assessment of the funding requirements of a pension scheme involves an estimate of what the trustees of the scheme will need at the date of assessment to meet, over time, the obligations to pay to members in the future the pension benefits they are entitled to under the scheme. An estimate of this sum necessarily needs to make a number of assumptions as to matters, such as future investment returns, wage or salary growth and longevity. 86. An assessment of the funding position of a scheme on a technical provisions basis is different from an assessment on a best estimate basis or on an insolvency basis. 87. An assessment on a best estimate basis involves making a best estimate of what sum is needed at the date of assessment to meet the liabilities under the scheme. The concept of a best estimate involves there being an equal chance that actual experience will be better or worse than the assumption. An assessment on a technical provisions basis involves more prudent or more conservative assumptions than those made on a best estimate basis in that they have a higher than 50% chance of turning out to be achieved or bettered. 88. An assessment on an insolvency basis involves assessing the funds which would be necessary in the event of the employer s insolvency or (a similar scenario) if the trustees wished to purchase annuities from an insurance company to meet the obligations under the scheme. In the latter scenario, the funds necessary are what the insurance company would charge the trustees for such annuities and this sum would